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An FBI crest is seen on August 3, 2007 inside the J. Edgar Hoover FBI Building in Washington, DC/AFP

Kenya

Failing hoteliers charged with $100 mn Ponzi scheme

An FBI crest is seen on August 3, 2007 inside the J. Edgar Hoover FBI Building in Washington, DC/AFP

An FBI crest is seen on August 3, 2007 inside the J. Edgar Hoover FBI Building in Washington, DC/AFP

NEW YORK CITY, August 1 – The FBI on Thursday arrested two New Yorkers on charges of running a $100 million Ponzi scheme they used to fund luxury lifestyles and disguise losses on a landmark beach hotel.

Brian Callahan, 43, an investment fund manager, and his brother in law Adam Manson, 41, were due to be arraigned before a judge in Central Islip, New York, later in the day on charges including wire and securities fraud, the Federal Bureau of Investigation (FBI) said in a statement.

According to the 24 count indictment, Callahan raised a total of $118 million from investors in four different funds he ran between December 2006 and February 2012.

Approximately $96 million of this total was allegedly used to operate a large scale Ponzi scheme a now well known type of financial fraud in which money from new investors is used to keep paying limited returns to previous investors, thus keeping the scheme afloat while the bulk of the capital is consumed by the fraudster.

Prosecutors believe Callahan diverted millions of dollars towards the Panoramic View, an unprofitable beachfront resort that he co owned with Manson.

The Panoramic View is located in Montauk, the picturesque eastern tip of Long Island that has long been a favorite of fishermen and has recently become a fashionable getaway spot for hipster New Yorkers.

As well as pouring money into the failing 117 unit resort, Callahan splashed out on expensive cars and luxury homes, including one in the millionaires playground of the Hamptons.

Manson meanwhile presented money he received from his brother in law as having come from his father, using the capital to fraudulently raise $45 million in loans for the struggling Panoramic View.

Callahan’s investors were provided with fake accounts that indicated their investments, which they believed had been placed in mutual funds and other securities, were performing well.

“To conceal their status as business failures, the defendants employed all the tricks in the typical con man’s books,” US Attorney Loretta Lynch said.

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One of the victims of the scam, a resident of Maryland, had invested $11 million after being assured all his funds would be placed in low-risk securities.

Ponzi schemes have been operated in numerous countries and have been around for the better part of two centuries. Some of the first examples appear in the works of English writer Charles Dickens.

They take their name from swindler Charles Ponzi, an Italian American who was first imprisoned for using the technique in 1920.

New York financier Bernard Madoff was convicted in 2009 of operating the world’s biggest Ponzi scheme, having raised $65 billion dollars from investors including Hollywood stars in a fraud which resulted in him being given a 150 year prison sentence.

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